Open Market Share Repurchase Programs and Corporate Governance: Company Performance

52 Pages Posted: 17 Apr 2015 Last revised: 5 Feb 2016

See all articles by Gary Caton

Gary Caton

Montana State University

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business

Yen Teik Lee

National University of Singapore (NUS) - Department of Finance

Scott C. Linn

University of Oklahoma - Michael F. Price College of Business

Date Written: December 21, 2015

Abstract

Payout policies based on share repurchase programs provide greater flexibility than do those based on cash dividends. We develop and test an empirical model in which strongly-governed companies outperform weakly-governed companies after announcing share repurchase programs. Our findings include positive associations between strong governance and both post-announcement adjusted operating performance and abnormal stock returns. The results are robust to sample selection bias, different sample criteria, governance measurement, and various control variables. In addition, governance strength is associated with larger post-announcement changes in CEO incentive compensation and merger and acquisition activity, both of which we argue are consistent with strongly-governed companies using the financial flexibility derived from choosing share repurchases over cash dividends to drive better performance. Consistent with current literature on attenuation of former anomalies, the associations we find between governance and post-announcement performance tend to disappear in the latter half of our sample period.

Keywords: Corporate Payout, Share Repurchases, Corporate Governance

JEL Classification: G34, G35

Suggested Citation

Caton, Gary and Goh, Jeremy and Lee, Yen Teik and Linn, Scott C., Open Market Share Repurchase Programs and Corporate Governance: Company Performance (December 21, 2015). Available at SSRN: https://ssrn.com/abstract=2594977 or http://dx.doi.org/10.2139/ssrn.2594977

Gary Caton (Contact Author)

Montana State University ( email )

447 Reid Hall
Montana State University
Bozeman, MT 59717-3040
United States

Jeremy Goh

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Yen Teik Lee

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

Scott C. Linn

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States
405-325-3444 (Phone)
405-325-1957 (Fax)

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